Bermuda: Banking Confidentiality

Bermuda Began To Tighten Up Legislation Early On

Although, like most other offshore jurisdictions, Bermuda began as a home for the wealth of private individuals, and still has a considerable amount of trust-related activity, its modern development has been more in the direction of corporate activity, particularly insurance, and it was therefore from the beginning anxious to conform to international standards of information exchange and money-laundering controls.

As early as August, 1999, Bermuda was addressing such issues, when the Senate passed three important pieces of anti-avoidance legislation:

• The Taxes Management Amendment Act 1999 defines which international tax-related crimes should be indictable and which dealt with summarily.
• The Proceeds of Crime Amendment Act 1999 criminalises tax evasion, and permits the authorities to investigate the local activities and accounts of people charged with, or convicted of, evasion anywhere.
• The USA-Bermuda Tax Convention Amendment Act 1999 strengthens the powers of the Government to give information to the US Government in answer to enquiries about US undertakings.

Then, early in 2000, Bermuda introduced two new sets of financial regulations that expanded the role of the Bermuda Monetary Authority. The Banks and Deposit Companies Act and the Investment Business Act came into effect in January 2000.

The chairwoman of the Bermuda Monetary Authority at the time, Cheryl Lister warned business to expect changes, the most significant being the transfer of licensing powers from the Minister to the Bermuda Monetary Authority which Ms Lister said was essential because it would ensure that "regulation lies with professional supervisors, with a clear separation of the prudential from the political aspects".

On a more general note, Ms Lister dismissed the objections of business to the Bank and Deposit Companies Act, arguing it merely formalised many existing rules and practices. She went on to describe the Act as 'a step that Bermuda must make to protect its reputation as a quality international financial centre', noting that 'we have received considerable support in this effort from the financial institutions who mostly will be impacted by the changes, as they realise that it is in their best interests to show that they are regulated in line with international standards.'

With regard to the Investment Business Act, Ms Lister said that it would subject a range of previously unsupervised business sectors to regulation.

UK Begins Its Review Of Overseas Territories

Although much of Bermuda's anti money-laundering legislation was undertaken unilaterally in response to expected pressure from the OECD and FATF, the UK government also played its part, particularly through the review of offshore banking and financial services regulation in Bermuda and its Caribbean overseas territories undertaken in 2000 by KPMG.

The review covered Bermuda, the Cayman Islands, British Virgin Islands, Anguilla, Montserrat, and Turks & Caicos, dealing with practices and legislation in the banking, insurance, securities', and companies' and trusts' offshore sectors. The review also focused on the role of the dependent territories' legislation and regulatory authorities in international co-operation on anti-money laundering measures.

The Governments of the dependent territories gave their full support to the review, which they saw as an opportunity to clean up their image as havens for tax evasion and financial crime. Indeed, leaders of the territories expressed hope that the review would demonstrate that they were better regulated than the OECD and some of its member countries are claiming.

While the KPMG review was taking place, it became clear through the UK's 2000 budget that Gordon Brown, then Chancellor of the Exchequer, was planning to try to compel Britain's Dependent Territories to exchange information on tax matters with the Inland Revenue.

The proposal for information exchange in the European Union, made indeed by the British, was an attempt to avoid the imposition of a 20% withholding tax on investment income, which would have been crippling for the City's international bond business. It wasn't however immediately clear to Bermuda or the other dependent territories what benefit they might be going to derive from information-sharing.

Bermuda Commits To The OECD

Before the KPMG report was made public, Bermuda signed a 'commitment letter' to the OECD, being one of six offshore jurisdictions which thus avoided inclusion on the OECD's infamous 'blacklist'.

In July 2000, Finance Minister at the time, Eugene Cox announced some of the aspects of the agreement. During a speech to the House of Assembly, Mr Cox outlined what he called 'an expanded, but carefully planned integration' of the domestic economy into the global one.

Essentially the Bermuda goverment had pledged to exchange information about tax in Bermuda with other nations; introduce legislation for local and international companies to file or audit company accounts and make them available to Bermudian authorities; keep the same tax system; allow international companies to participate in previously sheltered sectors of the economy (these sectors had not yet been named) and finally, to implement recommendations made by an advisory committee made up of individuals from both the private and public sectors (by 2003 for the financial sector and by 2005 for other businesses).

Whilst Bermuda's international businesses welcomed the government's moves to work with the OECD, they nonetheless were of the opinion that they had not been given enough information about proposed changes, and were worried that a lack of information could lead to 'anxiety' in the market.

Raymond Medeiros, the then chairman of the Bermuda International Business Association (BIBA) suggested that Cox's statement on Bermuda's commitment to the OECD raised a number of questions: 'These include precisely when and how Bermuda's legislation and regulations will be modified with respect to exchange of information, transparency and substantial activity, as set forth in the annex to the Government's letter of commitment to the OECD. The withholding of these details may result in anxiety amongst the stakeholders in Bermuda's international business community and their clients. The longer the delay, the larger the potential impact in this regard.'

His thoughts were echoed by the head of the Chamber of Commerce's International Division, who, whilst calling the OECD deal an "excellent result", said that the government needed to be careful to avoid a negative impact with local business.

'There are obviously going to be some changes to the way we operate right now, but we don't have much choice. We couldn't take the chance of being on the OECD list. We have the opportunity to see both local and international business flourish. But as in all these things, the devil is in the detail,' said David Ezekiel observed.

Mr Ezekiel revealed that he had no objections to the exchange of information, one of the key agreements between the OECD and the Bermuda government, as long as it was not to the detriment of local business. He said 'If properly handled we should continue to see growth in both sectors of the economy. In many ways it will not be business as usual, but I do not think that any changes should worry. But we have to make sure local business is not adversely affected. But this can be done through other legislation and we can decide what areas we allow businesses in.'

Initially, Bermuda seemed to have, overall, a pretty relaxed attitude to the OECD deal.

Mr Ezekiel summed it up when he suggested that:

'It is a fact of life that the world is moving on very quickly. Country after country is becoming less protectionist and we have to find a way of doing the same thing.'

But quite quickly there began to be considerable suspicion and consternation amongst the business community as to why full details of the agreement had not been made public. Mr Cox hit back, stating that there was no hidden agenda in not publishing the controversial annexe with the OECD or its full contents, and that his statement of the previous week in the House of Assembly had listed clearly and in detail what was in the document.

He added that the document was only "several pages" long, and even went so far as to say that if he had misled the House of Assembly on the contents of the annexe, he would be obliged to resign.

Of his critics, Mr Cox announced at the time that:

'I think the problem comes because we have not had to move as much as some countries, and what they haven't grasped is that we do not have that much to do and we are given plenty of time for the changes. By 2003, there will have been another election and who is going to go into an election with an agenda which is selling the country out?'

Mr Cox said that instead of signing away Bermuda's rights, the annexe in fact guaranteed more freedom to Bermuda: 'I have given a lot of the detail. The annexe was a qualifying document for the letter, and it staked out our claims. We are not using it to trick people. It is the Government's commitment to the community and what we talked about on Friday was this and spelt out what is in the annexe.'

However, the nagging question remained: if the annex was so uncontroversial, then why not publish it?

The KMPG Report Becomes Controversial

After that summer's OECD brouhaha, KPMG's delayed report found itself in the limelight. The release of the review, originally set for July 2000, was delayed because the first draft, which was said to be highly damning to all six jurisdictions, including Bermuda, was being extensively rewritten to present a softer outlook.

Of the original draft of the report, a high-ranking official said: "You know the old saw about a glass which is either half empty or half full, depending on your point of view? The approach that KPMG took in the first draft of their review was that all the glasses were nearly empty. It caused consternation."

In fact the first draft was just that, and was followed by intensive meetings with the jurisdictions concerned.

Financial Secretary at the time, Donald Scott suggested that the key difference between the KPMG initiative and those that preceded it (he meant the OECD), was that KPMG had proceeded from a basis of knowledge, rather than hearsay.

"It was refreshing to meet the people who were carrying out the investigation and have the opportunity to explain how we operate," the official said. "With some of the earlier reports, you had the feeling that another agenda was being pursued and that the conclusions had been reached very early into the process."

New Money Laundering Regulations Cause Concern

In August 2000, the House of Assembly passed changes to the Proceeds of Crime Act designed to allow police to investigate any allegations of money laundering, no matter how long ago it had taken place. Previously, police had only been allowed to actively investigate crimes that had occurred within the previous three years.

Opposition MP and Shadow Legislative Affairs MP at the time, John Barritt said the changes might mean that some people working with trust funds and banking might find that they had inadvertently overstepped the line years back, even though they believed they were acting within the law.

He argued that: "If you open it up so there is no limitation, you are saying to these people in Bermuda that they have to have due diligence going way back. This is going to cause, and is causing, great concern to people in the trust companies. If three years was too short, what about seven? Why all of a sudden is it unlimited?"

The opposition demanded to know whether the changes to the Proceeds of Crime Act had come about because of the agreement Bermuda made with the OECD that June to save itself from being labelled as a harmful tax jurisdiction.

Banker and Opposition Whip Cole Simons added his voice to the call for time limits on the confiscation of money, suggesting that "a certain family in the US" if they invested in Bermuda might have their riches taken away.

"I'm sorry, but we have to put a time limit on this," Mr. Simons said. "As procedure, it's impossible for us to go back 100 years. The reality is we cannot have retroactive legislation.

"This threatens Bermuda's competitive position and it sends the message that we're not on the cutting edge," he added. But Eugene Cox called Opposition complaints "untruths" and "absolutely arrant nonsense".

Mr. Cox stated that independent legal advice and the Attorney General's chamber's advice had approved the clause and "to suggest otherwise is a misreading of the Act".

The KPMG Report Turns Into A Paper Tiger

In August of that year, the Ministry of Finance let it be known that the KPMG report was expected to be 'generally positive'. But it wasn't until October that ministers were finally summoned to London to hear the full details.

The report handed down a very favourable review of Bermuda's financial regulations with real concern only shown in the area of the Trust Act, which the Bermuda Monetary Authority had already planned to address.

While the KPMG praised Bermuda for its stance against money laundering, the report contained several recommendations on how Bermuda's financial regulations could be strengthened, and the UK said that it expected a timetable of action to be drawn up

In general, KPMG seemed impressed with Bermuda's supervision of investment businesses, although noting some regulatory weaknesses which had already been identified by the Bermuda Monetary Authority, such as provision for prudential vetting of controllers, directors and senior executives of investment businesses and a need to increase capital adequacy provisions for businesses undertaking material positions or trading risks.

One area being examined for change was that of exempting certain categories of business from the need for supervision under the IBA.

KPMG announced that: "We consider the restriction of scope of the Investment Business Act to market intermediaries and those providing services to unsophisticated private investors to be too narrow. The principal requirement should be that all persons engaged in investment business be verified as being `fit and proper' and licensed."

However the Government said it was not prepared to include most exemptions current at that time, believing that exemption from strict regulation for those doing business with wholesale or sophisticated investors was fully justified, and in line with practices in most other countries.

The recommendations that the BMA be given stronger powers to enforce regulation and to petition the courts to wind up licence holders were both agreed by Government.

The Government did not, however, agree with the suggestion that breaches of the anti-money laundering code by investment businesses should be formally considered a regulatory breach. As with the banking and insurance industries, the Government felt there were other adequate powers in place to take action where necessary.

KPMG suggested a need for attention to the methodology of a supervisory regime for investment businesses that did not have a physical presence in the Island. The Government agreed with this, and said it was working on a supervisory programme for all in the sector. The BMA was visiting all licensed entities to construct an appropriate supervisory programme for each.

The Government was slightly more reticent in its approach to KPMG's suggestion that details on the public company register should be expanded to include directors and senior officers. It stated at the time of the report's release that it would consider this as possible for inclusion in the amended Act, but would be assessing the relevant costs and benefits of such action.

KPMG recommended enhancing BMA's enforcement powers over Collective Investment Schemes, and the BMA was already in the process of drafting a consultation paper for the industry to this effect.

Also addressed in the consultation paper were other KPMG recommendations such as: "We consider off-site monitoring should be designed to enable the BMA to assess the activities of a fund and to identify potential risk areas which may be evidence of regulatory breach or increase the likelihood of such a breach in the future. This should be achieved through a formal documented review programme.

"We consider that the present restriction on the ability of the BMA to conduct on-site inspections in respect of Standard schemes results in a failure to comply with IOSCO ( International Organisation of Securities Commissions) Principles 8 and 10.

"We consider that some enhancements (of the BMA's powers) would assist in achieving full compliance with IOSCO Principle 9. The BMA should be able to: require the substitution of any service provider to the scheme; apply to the court to appoint a custodian to manage the assets of the scheme; fine a scheme for breaches of the law or any regulations; issue directions."

Redefining collective investment schemes to include those constructed as limited partnerships was another recommendation that was being addressed by Government. This fell under amendments to the BMA (Collective Investment Scheme Classification) Regulations 1998, which were in the consultative stage.

KPMG suggested that the BMA should continue to vet foreign incorporated schemes, instead of passing them to the schemes' administrators as is currently proposed. But Government saw no need for this, particularly as fund administrators in the Island would be subject to licensing and regulation.

After the report had been published, the then Economic Secretary to the UK Treasury, Melanie Johnston, stated that she expected a specific timetable of action by January 15 2001.

It was agreed that "following appropriate consultation and parliamentary approval within each Overseas Territory, the core recommendations would be substantially implemented by September 30 2001".

Both the Bermuda Government and the business community were in agreement that the report held no surprises. In fact many said the KPMG recommendations coincided with those they had shown the reviewers at the start of the probe.

Progress At The Bermuda Monetary Authority

In September, 2000, Cheryl-Ann Lister, the then Chairman of the Bermuda Monetary Authority, gave a progress report on its handling of financial regulation on the island.

The burden of the red tape involved in dealing with the international organisations had fallen hard on the Authority, Mrs. Lister revealed, speaking at a meeting of Women in International Trade.

"The past 12 months have been particularly busy, with a number of important changes implemented and having to take time to participate in the various reviews and meetings associated with these reviews," she explained.

Mrs. Lister revealed that the deficiencies found in the Trust Companies Act 1991 and the Investment Business Act had now been addressed. And she said the Proceeds of Crime Act 2000, which had been passed earlier in the year, would soon come into effect.

It followed international best practice and addressed criminal tax evasion and gave the BMA more teeth to deal with problems, she revealed. In addition, the Banks and Deposit Companies Act 1999 gave the BMA the responsibility of licensing and supervising deposit taking institutions as well as making sure they complied with international standards.

Mrs Lister stated that: "Over the past few years Bermuda has made substantial progress in reviewing its financial services legislation in order to bring it up to date and to ensure it meets international standards."

However, in a later speech, the Chairman emphasised that Bermuda would not slavishly follow recommendations of various international bodies on how the Island's financial services sector should be regulated.

"While it often seems that Bermuda's response has to be entirely driven by the various international pressures confronting us, the reality is that we continue to set our own agenda," she said.

"We will introduce those improvements that we know make sense from the point of view of our need to preserve the quality of our jurisdiction and commitment to international standards, while ensuring that we maintain the conditions necessary for our financial markets to develop and thrive."

Bermuda Grapples With The US Qualified Intermediary Rules

Late 2000 saw offshore jurisdictions coping with the demands of the US Treasury's Qualified Intermediary rules, due to take effect from 1st January 2001, and Bermuda was no exception.

First the jurisdiction had to agree its 'attachment' with the Treasury, amounting to a statement of the 'know-your-customer' and other regulatory procedures in force, and then the individual financial institutions needed to obtain Qualified Intermediary status with the Treasury, allowing them to apply pooling rules to groups of investors in US securities and to the collection of US withholding tax in appropriate cases.

"One of the main benefits to our non-US customers of Butterfield Trust becoming a Qualified Intermediary is that their personal information will remain confidential and will not be disclosed to the Internal Revenue Service," said a spokesperson from the Bank of Butterfield.

"The Bank of Bermuda will be looking to have its qualified intermediary status approved in Bermuda and all jurisdictions where it has a presence," said a Bank of Bermuda spokesperson. But the Bank of Bermuda said the new rule will result in "a tremendous amount of extra work for all affected".

"The new ruling surrounding the US Withholding Tax is one of the most significant changes to US tax law for many years," the bank said, "in terms of the impact it will have on organisations around the world."

The Bank of Butterfield said the procedures it puts in place will "undoubtedly bring increased costs" but added that the costs would be one-off and that on-going costs were not expected to be high.

"While the new rules will bring demands on the trust company in collecting new withholding tax forms from customers who own US securities, this is a process which is well underway and has proceeded very smoothly," said the Bank of Butterfield.

"We have received a very quick response from our clients who have had no difficulty in complying with the requirements. As a result, we anticipate being compliant well before the new procedures become operative on January 1 2001."

Bermuda Reaps The Rewards Of Respectability

At least, that was the interpretation put on very healthy figures for new incorporations in 2000 revealed by the Government in January 2001. Local firm Appleby, Spurling and Kemp said that it supposed there was a 'flight to quality' among firms and individuals looking for an offshore jurisdiction which was not in any danger of being targeted with sanctions by the OECD or the FATF.

Certainly the figures for 2000 were satisfactory, whatever the reason: the number of exempted companies incorporated in the third quarter of 2000 soared by nearly 40% over the same period in 1999, according to statistics published by the Bermuda Monetary Authority.

In total 1,617 companies were incorporated in the first three quarters of 2000, ending September 30. This compared to the 1999 total of 1,223, and was already a 32% rise on the whole of 1999.

The bulk of the total applications approved for the quarter were for exempted companies. Out of the 505, 392 were exempted - some 77.6 percent.

The events of 9/11 had an immediate impact on Bermuda, along with other offshore jurisdictions. But by 2003 incorporations had recovered and were again running at high levels. 428 new companies, partnerships and permits were created in the final three months of 2003, representing the second highest number since the BMA began reporting the data in 2001.

The strong trend continued into the first quarter of 2004 which saw a further 416 incorporations (178 of which were recorded in March alone), substantially higher that the 296 seen in the first quarter of 2003.

By category, the largest number of new incorporations in the final quarter of 2003 was of exempted companies, 308 of which were established, representing a 12% rise on the previous year.

A total of 1,001 new incorporations were registered during the first three quarters of 2005. This compares to a figure of 1,020 incorporations during the same period in 2004.

The new incorporations during 2005 mean that the total number of firms registered in Bermuda stood at 16,808 as at September 30, an increase of 413 since the end of the third quarter of 2004.

Major Changes Planned To Bermuda's Trust Companies Act

The Government began to prepare radical revisions to the regulatory regime for trust companies in early 2001, including a substantial strengthening of the powers of supervision and enforcement of the Bermuda Monetary Authority (BMA).

To this end, the BMA put forward a series of proposals to be considered by trust providers by the end of February 2001.

Alec Anderson, a specialist in trust law with Conyers, Dill and Pearman, said: 'By and large most of the suggestions are non-objectionable. But there are one or two areas of concern.' He said that concern centred around disclosure of information and just how far the amended legislation should reach, but was confident that trust service providers would generally choose to comply when they reported back to the BMA at the end of the month. Mr Anderson said: 'I don’t believe there will be widespread disagreement.'

Essentially the BMA wanted the power to access "all relevant information" about those providing trust services and their operations. It also wanted to be able to investigate private trust companies, which did not require a licence, if dubious transactions were suspected. Trust companies had been protected by law from having to disclose clients' information without a Supreme Court order. The BMA was also pushing for banks to be allowed to operate trusts without having to set up a separate subsidiary.

The government passed the Trusts (Regulation of Trust Business) Act 2001.

Bermuda Gets To Grips With Money Laundering Reality

Ever conscious of the need to protect its good reputation as a 'clean' jurisdiction, Bermuda's authorities and banking community were disturbed when the jurisdiction was 'named' if not 'shamed' in a US Senate report on money-laundering in March 2001 which focused on the role of correspondent banking.

Although it harked back more than ten years, the report claimed that Swiss American Bank, owned by Swiss oil trader and financier and former Bermuda resident Bruce Rappaport, used its correspondent relationships with Bank of Butterfield and Bank of Bermuda to 'wash' money believed to have come from terrorism and drugs.

Enquiries by the media met a brick wall of confidentiality, however. Bank of Bermuda said in writing: "Bank of Bermuda has a duty of strict client confidentiality, consistent with our legal obligations to our clients.

"Therefore we are unable to comment on any matters concerning a client relationship, including confirming or denying whether an individual is now or ever has been a client of the bank."

Whether or not by coincidence, on almost the same day that the US Senate report surfaced, the Bermudian government announced that a compliance training adviser from the Caribbean Anti-Money Laundering Programme (CALP), associated with the Caribbean Financial Action Task Force, was helping to set up training programmes for Bermuda's compliance officers.

Manuel Vasquez was in Bermuda at the invitation of the Association of Bermuda Compliance Officers - ABCO, said the announcement. Under the Proceeds of Crime Act, said ABCO, firms and institutions were required by law to implement staff training programmes in compliance with the regulatory guidelines. Staff at all levels needed to be alert to the possibilities of their organisation being abused by money launderers and to be aware of their legal reporting obligations.

ABCO had invited Mr. Vasquez, CALP's financial sector adviser, to address its members to help them formulate training programmes within their own organisations.

He said, "This is part of business risk management as, under the law, failure to comply with legislation exposes an organisation and individuals within an organisation to legal liability.

"Money laundering has increased potential to cause real reputational damage to institutions and to Bermuda.

"As an offshore centre it is important to realise that you cannot just take an insular view, because Bermuda's market is all around the world. Just because there are no bearer shares in Bermuda does not mean there is no risk, because business is being done here with trust companies from other jurisdictions that do have bearer shares and IBCs.

"The risk areas in any place are reflected in the business lines operating there. Bermuda has been able to avoid a lot of money laundering because the main line of business is insurance. The type of insurance marketed in the Island is not in the high risk area.

"This is unlike places such as Cayman and the Bahamas where the diverse finance industry leaves them much more exposed. But risk areas here include the banking sector and smaller investment institutions."

Mr. Vasquez explained that training programmes needed to be devised for all levels, right up to the board, so that everyone understood their responsibilities and potential liabilities.

" Everything should be focussed on risk management. The time needed to defend a money laundering charge is lengthy and it can be very expensive," said Mr. Vasquez.

CALP is associated to the CFATF and began operating in 1999. It is funded by the European Union, the US and the UK and provides technical assistance and training to beneficiary countries in their anti-money laundering efforts.

Its five year programme includes the following objectives: to reduce laundering of proceeds of serious crime; to facilitate investigation and prosecution of money laundering offences; to facilitate seizure and forfeiture of property associated with criminal activity; to strengthen the capacity of regional institutions and promote intra-regional cooperation in addressing money laundering issues; to provide technical assistance and training; to develop local expertise in order to ensure the long term sustainability of anti-money laundering programmes.

ABCO underlined the importance of the compliance officer's role at a meeting in April when Owen Reid, the association's chairman and co-founder, said: "It is difficult to precisely define a suspicious transaction. In general terms however, a suspicious transaction will often be one that is inconsistent with a customer's known, legitimate business or personal activities, or with the normal business for that type of account."

In defining the role of the compliance/reporting officer he said an important responsibility was to receive reports of suspicions from individual employees in the institution. "Suspicious behaviour is cumulative. Where a single unusual occurrence might not cause any special notice, the repeated occurrence of events which are inconsistent with a customer's stated business become increasingly suspect," he said.

The reporting officer must then determine whether the reported suspicion was well founded in the light of all other relevant information. "In making this judgment they should consider all other relevant information available within their institutions concerning the person or business to whom the initial report relates.

"This may include making a review of other transaction patterns and volumes through the account or accounts in the same name, the length of the business relationship, and referral to identification records held," said Mr. Reid.

The reporting officer was then responsible for passing reports of suspicious transactions to the Island's Financial Investigation Unit - FIU, a separate section within the Bermuda Police Service set up to administer provisions of the relevant legislation. In his paper Mr. Reid pointed out the importance of ensuring all possible enquiries had been made before passing a report to the FIU.

It was the responsibility of the compliance/reporting officer to ensure his or her institution had a solid compliance regime. "It has been widely recognised that the implementation of a well-designed, applied and monitored compliance regime is a `good business practice' as it provides a solid foundation for ensuring/measuring a regulated institution's ongoing compliance with the regulations,"said Mr. Reid.

Pinochet Affair Provides Test For Bermudian Confidentiality Laws

The arrest of the (now late) Chilean leader Augusto Pinochet and the subsequent efforts by Spanish Judge Baltasar Garzon to freeze the general's assets worldwide gave a stark demonstration of the weakness of Bermuda's regime for the protection of assets in the jurisdiction, when the Government fled at the first whiff of grapeshot.

Long after the general had returned home from his temporary detention in the UK, the Spanish judge continued to pursue Pinochet, issuing a "Rogarty Letter" to the Foreign Office, which supinely decided to pass it on to the Bermudian authorities. Such letters are used by justice authorities to obtain financial information or initiate legal action in other countries.

The letter called for "the embargo, blockage and deposit of the balances associated with insurance policies or insurance contracts of any nature, including bank accounts and/or deposits, shares of investment funds and certificates of deposit, owned by Augusto Pinochet Ugarte either directly or through third persons, and those that his family may have in Bermuda."

The Rogarty Letter named the offices of Standard Life Canada offices in Montreal, the Standard Life branch office in Bermuda and the subsidiary of the company at Front Street in Hamilton.

The Foreign Office confirmed it had received a Rogarty Letter from Judge Garzon in April 2002, and presumably obtained information from Bermuda which it passed on in turn to the Spanish, because in May the Spanish were able to ask for specific assets to be frozen, despite categoric denials by Pinochet's lawyer that there were any assets to freeze: "There is no account in the Bermudas or anywhere else," said Pinochet's defence lawyer, Jose Maria Eyzaguirre. "This is without doubt part of the campaign to try and sully General Pinochet and the armed forces," he added.

In May, a writ was filed in the Supreme Court by the Deputy Governor against the Attorney General of Bermuda, Freisenbruch-Meyer Insurance Services Ltd. and their subsidiary Harnett & Richardson Ltd., and assets were frozen immediately. The mechanism used was that of an "Anton Pillar Order", a well-established legal mechanism used to freeze assets which it is thought might be about to leave a jurisdiction.

Deputy Governor Tim Gurney said: "We did receive a request via the Foreign Office from the Spanish judiciary about certain assets in Bermuda. As Bermuda is party to international conventions, action was taken over the weekend and assets have been frozen."

Freisenbruch-Meyer is the manager of Standard Life in Bermuda, but is a branch office of the Canadian Standard Life, which is run from its global headquarters in Edinburgh in the United Kingdom.

A four-page letter was also sent to the Canadian Federal Department of Justice, where Judge Garzon asked the Canadian government to assist in "the embargo, blockage and deposit of the balances associated with insurance policies or insurance contracts of any nature, including bank accounts and/or deposits, shares of investment funds, and certificates of deposit" owned by Pinochet either "directly or indirectly or through third persons".

Although assets had already been frozen in Bermuda, Standard Life in Edinburgh denied the company had any involvement with Pinochet, his family or his associates. A spokeswoman said: "Standard Life has undergone an in depth internal revue, and I can confirm categorically there is no connection with Pinochet, his family or anyone associated with him. The matter is now closed." She said nothing in Standard Life had been frozen, either in Bermuda or elsewhere in the company.

In January, 2005, the SEC welcomed a court order which sought to compel a Bermuda-based brokerage and investment banking firm to respond to subpoenas issued by the securities regulator.

Magistrate Judge Alan Kay, ruling in the US District Court for the District of Columbia, stated that managing director of Lines Overseas Management, Scott Lines had failed to prove that the confidentiality laws in place in Bermuda meant that the firm could not comply with the SEC's demands.

The Commission was seeking information relating to "extensive trading" via accounts held with Lines Overseas Management in three technology firms that were under investigation.

Bermuda's New Anti-Money Laundering Law Takes Effect

Bermuda's new anti-money laundering legislation came into effect via the Proceeds of Crime Amendment Act 2000 from 1 June, 2001. According to one of Bermuda's top legal firms Appleby, Spurling and Kempe (AS&K), the new Proceeds of Crime Amendment Act together with the Taxes Management Amendment Act 1999, which also took effect from 1 June, reinforced Bermuda's reputation 'as a financial jurisdiction of the highest integrity ... Bermuda is now in a position to comply with most of the recommendations of the Financial Action Task Force.'

Then Finance Minister, Eugene Cox claimed: 'By the introduction of these two acts, Bermuda has now included fiscal offences under its proceeds of crime legislation, consistent with Bermuda's own intent and international expectations and anti-money laundering standards.'

With the Act in place, all forms of tax evasion became criminal offences in Bermuda. AS&K explained however that all individuals and companies who employed 'legitimate means' of tax avoidance or minimisation would be able to continue to do so. The firm said: 'The Act refers specifically to a fraudulent breach, a wilful act with intent to defraud the tax authorities, and offences, or potential offences, will have to satisfy Bermuda's definition of an offence, which may not necessarily be the same as in other jurisdictions.'

'Bermuda now has had three years' experience working and doing business with comprehensive anti-money laundering legislation in place. Bermuda's businesses have become comfortable working in this environment', commented Barrie Meade, Compliance Manager at AS&K, 'indeed, Bermuda's international business sector has continued to grow, and Bermuda's fine reputation for integrity has stood us all in good stead.'

September 11th, 2001

After the atrocities in the US on September 11th, then Acting Premier Eugene Cox insisted that Bermuda offered no hiding place for terrorists or their money

In a press briefing, he said that Government was helping the international search for the terrorists but added that the risk of Bermudian businesses being involved inadvertently in handling money belonging to terrorists was very small.

The Government had also asked Bermuda's banks and other financial institutions to go through their records of customers around the world to make sure that any possible links to terrorist bodies or fronts can be quickly identified and reported in a bid to catch the groups.

"The local and international community can be reassured that Bermuda offers neither a physical nor a financial hiding place for terrorism," Mr. Cox said.

He added that Government was liaising with international law enforcement agencies in the search for terrorists and the money they use to fund their activities.

"At present, Government is aware of no grounds for believing that there may be links between the terrorist organisations responsible for the recent outrages and any persons or institutions in Bermuda," he said.

He added that Bermuda's financial institutions had been subject to strict legal anti-money laundering requirements for many years, which had been endorsed by the relevant international bodies.

"Consequently we believe that the risk that Bermudian institutions may have been inadvertently involved in handling terrorist money is very small."

He confirmed that the most careful checks were being made in order to be satisfied of the full effectiveness of Bermuda's controls and to ensure that the Island's authorities could co-operate wherever necessary in the current international efforts.

Minister of Labour, Home Affairs and Public Safety at the time, Paula Cox said that the FBI had given the Bermuda police the names of 223 individuals who had been put on a stop list and said there was a separate list of hundreds of names which had been given to the Bermuda Monetary Authority, which was in charge of the regulation of the Island's financial institutions.

Ms Cox said: "There are additional names that the Bermuda Monetary Authority has on a Watch List re economic terrorism. The Department of Immigration has also added these names to the stop list."

Ms Cox added: "One thing that is very important is that the ties between the different international agencies have grown stronger. This gives you a sense of ease. It is good to know."

Bermuda Issues Progress Report On KPMG Recommendations

Speaking in May 2002, the then Bermudian Finance Minister, Eugene Cox gave an update on the Island's progress with regard to areas of concern highlighted in a KPMG review of the jurisdiction commissioned by the UK government in 1999.

Mr Cox seemed pleased with the progress made since 1999 in areas such as the establishment of independent regulatory authorities, the completion of anti-money laundering legislation, and the provision of assistance to overseas regulators in cases of tax evasion and money laundering. He said:

'This updated report confirms Bermuda's commitment to ensuring that its financial regulation continues to meet international standards. It also makes clear the sustained progress being made by the government on the wider review and upgrading of Bermuda's suite of financial regulatory information to which we are committed.'

The Finance Minister revealed that the Island's insurance regulator had been separated from the government, in compliance with the first 'priority action' recommendation, and that amendments to the Bermuda Monetary Authority Act and the Insurance Act had provided many of the powers necessary for effective information exchange with the regulatory authorities of other countries.

However, he added that additional amendments to the legislation which governed Bermuda's financial centre were set to come before the House throughout 2002, improving the efficiency of the regulatory regime still further.

The UK Government itself praised the progress made by the Caribbean Overseas Territories - the British Virgin Islands, the Cayman Islands, Anguilla, Montserrat and the Turks and Caicos Islands - and Bermuda in implementing the recommendations of the KPMG report.

According to Ruth Kelly, Economic Secretary to the Treasury at that time, and Baroness Amos, then Foreign Office Minister for the Overseas Territories, their progress had been 'impressive'.

In a joint statement released in late May, the Treasury and Foreign Office ministers announced that:

'Better financial regulation is important in ensuring that Britain's Overseas Territories maintain their status as important financial centres. We congratulate them on the progress they are continuing to make in implementing the recommendations in the KPMG report to improve standards of financial regulation.'

The Ministers revealed that all of the jurisdictions concerned had enacted comprehensive anti-money laundering legislation, and that independent regulatory authorities were up and running in all territories but Anguilla and the Cayman Islands.

The progress report further states that all of the UK's Overseas Territories, with the exception of Anguilla, have legislated to improve information exchange with foreign regulators. The FCO and Treasury also praised the new Trust Act recently adopted in Bermuda.

However, both Ms Kelly and Baroness Amos warned that in addition to legislative measures, the necessary human and financial resources needed to be allocated to the new regulatory bodies in order to ensure that they were able to operate effectively.

The $64,000 Question: To Exchange Information Or Not?

Within days of the self-congratulatory exchanges on the KPMG report, Eugene Cox visited the UK in order to ascertain the possible implications of the EU Savings Tax Directive on British Overseas Territories. Accompanied by Financial Secretary at the time, Donald Scott, Mr Cox met with Treasury and Foreign and Commonwealth Office officials in order to determine the likely impact of the directive on Bermuda's finance sector. Although the UK had exerted pressure on Crown Dependencies such as Jersey to agree to information exchange on the savings interest of non-resident EU account holders, Bermuda was understood to have received no such ultimatum.

In November 2002, Bermuda did not join in a meeting of British dependent territories attended by government ministers from Cayman Islands, BVI, Anguilla, Montserrat and Turks and Caicos, called to discuss the negotiations over the EU Directive. According to Mr Scott: “The situation for those overseas territories is different to Bermuda because the structure of some of their economies relies more on offshore banking than is the case in Bermuda.”

Shortly afterwards, however, the Bermuda government sent Donald Scott and Registrar of Companies, Stephen Lowe to a closed OECD meeting in the Cayman Islands. Eugene Cox said that the meeting agenda had focused on the information requirements that were necessary to give effect to exchange of information agreements between OECD countries and non-OECD countries.

In January, 2003, when the EU finally agreed its Savings Tax Directive, including a mixed information-sharing and withholding tax regime, Bermuda's uncertainty continued. Had the Directive imposed a clear level playing field for universal EU information-sharing, it's likely that Bermuda and the other UK-linked jurisdictions would have faced pressure to fall into line; but the multi-year opt-outs for Austria, Belgium, Luxembourg and Switzerland in favour of a withholding tax provided an escape route for the offshore jurisdictions. Last-ditch negotiating by Italy and then Belgium delayed the onset of information-sharing until 2005 in any event, even for those countries which were going to impose it.

Despite the absence of a level playing field, EU and British officials continued to assert that information-sharing would apply to the offshore dependencies; but a misunderstanding over Bermuda's geographical location seemed to have worked in Bermuda's favour: an EU spokesman said that only the Caribbean territories were included in the Directive, observing that: “Last time I looked, Bermuda was not in the Caribbean.” The spokesman was unable to confirm whether Bermuda's omission from the EU's Directive was made in error, or in good faith.

The EU spokesman's revelation came as no surprise to Paula Cox, at that time, Acting Finance Minister, who said: "I don't think we were ever included in the agreement. We have an exchange of information agreement, and as long as the proper paperwork is filled and referred to the Attorney General’s chambers, it can be released," but added: "We do not want anyone on fishing expeditions. We do not engage in such matters."

Significantly, Bermuda's ambassador for Switzerland Bruno Spinner visited the island in April, 2004, meeting with the Bermuda Monetary Authority 'to share information on anti-money laundering practices, and other financial institutions.' "I want to exchange views with them on issues relating to the international financial market and developments in the field of insurance and banking," said Mr. Spinner.

He said he believed Bermuda and Switzerland had much in common, with very liberal financial systems. He added: "We like the protection of privacy of our clients, but in order to have that and to have a liberal system, we need to be merciless with those who misuse the system. We can learn from each other and exchange information and experiences, but we can also make a common front against those who would like to kill our liberal systems, not only criminals, but some states."

In December, 2005, Bermuda's House of Assembly voted to approve new legislation facilitating the exchange of tax information with other nations in a bid to cooperate in the stamping out of international tax evasion.

The International Cooperation (Tax Information Exchange Agreements) Act 2005, introduced into the Assembly by Finance Minister Paula Cox, was umbrella legislation that will give effect to Tax Information Exchange Agreements with countries in the OECD and the European Union.

The bill, which was passed in committee and sent to the Senate, came hot on the heels of Bermuda's sealing of a TIEA with Australia, which was signed by Ms Cox and Australian Treasurer at the time, Peter Costello in Washington, DC in November. The agreement marks the first treaty that Bermuda has entered into following a commitment to ban harmful tax practices five years ago. Bermuda's first TIEA was signed with the United States in 1988.

The Australian authorities have recently escalated their enforcement activities involving offshore transactions, and had been keen to initiate a tax information exchange deal with Bermuda after it became apparent that a significant proportion of funds flowing in and out of the country were being transmitted through offshore territories.

"I understand that both Australia and Bermuda are committed to ensure that their financial sectors are not used for money laundering or the financing of terrorism," Ms Cox quoted OECD Chairman on Fiscal Affairs Bill McCloskey as stating.

"Bermuda has already has a strong track-record in this respect," she added.

According to Cox, tax exchange agreements would not only distance Bermuda from its old "tax haven" label, but also boost trade in financial services and improve commercial relations. "As such it is important to our national economic interest that Bermuda directly negotiates with such countries," she stated.

Ms Cox revealed that Bermuda was negotiating with the UK towards the completion of an updated TIEA and was also in diplomatic contact with Mexico.

Compliance In Bermuda

Despite Bermuda's initial escape from the horrors of information sharing, in other respects the country had pursued a totally virtuous path in response to legislation such as the US Patriot Act and general international pressure to improve compliance.

Addressing an Audit and Compliance Forum in July, 2002, Bank of Bermuda CEO Henry Smith said: “Money laundering and the criminal activity which drives it are global problems which require global solutions. We must move away from the perception that the offshore world is the root of the money laundering problem and explore opportunities for onshore and offshore institutions and authorities to work more closely together in search of solutions.”

As an example, Mr. Smith highlighted the bank’s own involvement with a Ponzi scheme in the bank’s Cayman offices a few years ago which arose out of a legitimate cash for titles loan business. He said it was a terribly frustrating experience for the bank and himself as CEO, but added: “What really upset me was the approach taken by the authorities.” Mr. Smith said: “It was alleged that investors lost some $300 million in the scheme, and I am utterly convinced that, if the authorities had alerted us and asked for our assistance, the losses would have been a fraction of that number.”

Mr. Smith asked: “Why didn’t the authorities involve us in their investigation? I can only assume that they jumped to the judgment that we were somehow directly involved and couldn’t be trusted, and that really angers me. It was a poorly advised and counterproductive judgment to make, and it really brought home to me the enormity of the challenge we face to achieve effective cooperation.”

Mr. Smith said the Bank of Bermuda, the world’s largest offshore bank, took compliance seriously in all of its locations, and in all of its businesses and education of staff was a top priority. He said that like those present at the conference the bank fully co-operated with the FBI search for Al Qaeda funds after September 11 2001, and checked around 2,000 names throughout all their offices globally. While none of the names appeared on the bank’s records, Mr. Smith said: “The terrible events of September 11th, however, clearly raised the stakes for all of us. Not only are we now alert for the new problem of “reverse money laundering” – the conversion of legitimate funds to terrorist activity – but we have also all witnessed the terrible price of failure. Global cooperation in the fight against money laundering simply must be a priority.”

Mr. Smith was not however totally happy about the Patriot Act, explaining: “While we applaud the Act itself as a necessary, and if anything, overdue piece of legislation, it places an unnecessarily costly burden on non-US institutions by requiring us to provide, to each US institution with which we deal, a Patriot Act Certificate guaranteeing that, among other things, we do not have a relationship with any shell banks. We don’t have a problem with the certification itself, but rather with the number of certificates we have to provide. There is no central agency managing the process and no clear definition of which institutions need the certification, so everyone is asking for one. It costs $340 to set up a certificate, and $200 each year to renew. We deal with some 169 US banks and many more brokers, and, on top of that, we have 6 dealing centres in our network, and some correspondents are asking for a certificate from each. This could cost us hundreds of thousands of dollars and, in fact, force us and many other foreign banks to rationalise our US relationships, resulting in lost business for a number of US banks and brokers.”

Mr. Smith said he believed the Act would be just as effective if it required the bank to provide one group certification to a central agency, such as the Federal Reserve. Instead, he said: “It is, in effect, raising the cost for us to cooperate in the fight against money laundering. Good intentions, unfortunate results.”

Following the lead of the US, various onshore and offshore jurisdictions have moved to impose a statutory duty on regulated firms to appoint compliance officers, with responsibility for administering their firms’ statutory obligations, such as conduct of business rules.

In smaller organisations, the compliance officer is also the reporting officer (referred to in Bermuda as the “money laundering reporting officer”, or MLRO). Within Bermuda, the primary difference arising between the role of compliance officer and the MLRO is that MLROs are required to be appointed by law under section 6 of the Proceeds of Crime/Money Laundering Regulations 1998. In most cases, MLROs are solely concerned with administering their firms’ anti-money laundering initiatives. Compliance officers tend to have a much wider focus than that of MLROs.

Bank of Bermuda’s Capital Markets division compliance manager at the time, Owen (Tony) Reid, who also the first president and co-founder of the Association of Bermuda Compliance Officers (ABCO), revealed that when he came to Bermuda after spending eight years with Merrill Lynch on Wall Street, he found that “Bermuda’s regulatory landscape was undergoing significant changes, which required an understanding of a culture for compliance".

“For example, in 1995, the KYC standards and related obligations were embodied in a voluntary code of conduct which did not have the force of law, there was no securities legislation, and standards relating to mutual funds, banks, deposit companies and trusts were in need of improvement,” he recalled.

Now, appropriate legislation covers these activities. Since 1995, the Proceeds of Crime (Money Laundering) Regulations 1998, The Bermuda Monetary Authority (Collective Investment Scheme Classification) Regulations 1998, the Investment Business Act 1998, The Banks & Deposit Companies Act 1999, The Trusts (Regulation of Trust Business) Act 2001 and the Proceeds of Crime Amendment Act 2002 have provided Bermuda with an effective regulatory and compliance framework.

As the role of compliance grew, “we saw a need for an association of compliance officers, to act as a network, provide education and training, develop camaraderie and become a forum for the discussion of issues,” Mr. Reid said. The growth in importance of the compliance function prompted the formation in 1999 of the Association of Bermuda Compliance Officers. The organisation is focussed on raising the profile of the compliance function locally, while seeking to provide members with meaningful opportunities for networking, consulting and the sharing of information necessary for supporting their positive roles as compliance professionals. ABCO contributes to the debate when new legislation is being considered and is currently exploring appropriate courses and qualifications in the field of anti-money laundering and compliance practice.

The collective effect of Bermuda's laws, together with the National Anti-Money Laundering Committee’s Guidance Notes on the Prevention of Money Laundering, explained Mr Reid, is to impose internationally recognised due diligence standards and related obligations on regulated institutions, most of them supervised by the Bermuda Monetary Authority (BMA), the independent watchdog for Bermuda’s business sector. The banks, the largest law firms, insurance companies and others in the financial services sector all have compliance officers. Bank of Bermuda, for example, has dozens.

In December, 2004, Bermudian lawmakers approved new measures strengthening the island’s laws against terrorist financing. The Anti-Terrorism Act made it an offence to raise funds for terrorism, to use and possess money or other property for terrorism, and to be involved in any arrangements where money has been made available for terrorism. The measures require businesses to report to the police any suspicions that money may be being used by terrorist groups, whilst judges have been given powers for accounts to be monitored. The law also allows the property of suspected terrorists to be seized and held for periods of up to two years during an investigation, and potentially forfeited indefinitely. However, according to William Kattan, an official in the attorney general's office, there is no evidence that terror groups have used Bermudian institutions to fund attacks.

In December, 2004, the Bermudian office of accounting firm KPMG called upon organisations in the private and public sectors to redouble their efforts to prevent money laundering activities, highlighting the need for a greater public awareness of the issue. Revealing the findings of a global anti-money laundering survey commissioned by KPMG’s UK office, Malcolm Butterfield, managing director of Financial Advisory Services (FAS) at KPMG Bermuda suggested that local anti-money laundering policies, and a general awareness of the issues should be a priority for the entire community.

“There are billions of dollars in money laundering schemes in effect worldwide and we cannot be naive to think that Bermuda won’t be targeted,” Mr Butterfield stated, continuing: “A collaborative effort between the police, government and the public is required to combat it.”

The KPMG survey found that responding banks were placing a higher emphasis on addressing anti-money laundering issues, whilst compliance costs have risen some 60% over the last three years.

“Basically financial institutions in the UK are allocating more resources to developing robust anti-money laundering strategies and procedures, in terms of finances, people and management time,” observed Mr. Butterfield, adding that Bermudian regulators, the private sector and the government have all moved in line with this trend.

The International Monetary Fund in March, 2005, published a two volume review of Bermuda's regulatory and supervisory regimes, which was generally positive, but highlighted some areas where procedures for the combating of money laundering and terrorist financing could be improved. According to the IMF, the Island's financial, regulatory, and supervisory framework is well developed in banking, the key areas of securities regulation, and anti-money laundering. However, some deficiencies were noted in the assessment of insurance.

The report noted that banking supervision was largely in conformity with the Basel Core Principles, but suggested that the system could be strengthened by the development of further formal processes and additional systems for on- and off-site supervision supported by additional resources, as well as by greater budgetary independence for the regulator and a reduction in the ministerial power of direction, to reduce the potential threat to operational independence. It went on to observe that the regulation of investment intermediaries and collective investment schemes, the main activities of the Bermudian securities industry, is working effectively, but that centralization of issuer regulation and shareholder protection would strengthen the system, as would greater oversight of the stock exchange by the Bermuda Monetary Authority. Planned improvements in legislation would provide the regulator with the required powers, and further staff training would significantly strengthen its supervisory capacity.

Some deficiencies were noted in the supervision of the insurance sector, as while the BMA has broad powers to supervise the sector, these are not yet fully realized. The oversight of the insurance sector is conducted in close cooperation with the insurance industry and its independent auditors, with the industry supporting a very thorough and effective screening function required for entry. Reflecting the sophisticated nature of the industry, the regulatory regime relies on self supervision to a large extent.

The IMF recommended that in order to enhance what has proved to be a flexible system, the authorities should provide additional guidance for the auditor, improve the information provided by the industry, and increase the BMA’s capacity to analyze on-site and off-site information supported by enhanced IT systems.

In August, 2005, Bermuda's National Anti-Money Laundering Committee launched a website detailing the initiatives being taken by government to combat and reduce the incidence of money laundering in the jurisdiction.

The website, which is found at www.namlc.bm, contains information on current anti-money laundering legislation.

The website also contains the Caribbean Financial Action Task Force (CFATF) Country Situation Report on Bermuda, and links to other relevant bodies such as the Bermuda Monetary Authority and government departments.

"The Government recognises the benefits to be gained by promoting greater public awareness and understanding of the ill effects of money laundering and financing of terrorism and will continue to do so," Minister of Finance Paula Cox told Parliament whilst announcing the launch of the new site.

According to a comprehensive global money laundering report issued by the US State Department in March, 2006: 'Bermuda is a major offshore financial center, and has a strong reputation internationally for the integrity of its financial regulatory system. The Government of Bermuda (GOB) cooperates with the United States and the international community to counter money laundering and terrorist financing, and continues to update its legislation and procedures in conformance with international standards.

'The Government of Bermuda should continue its efforts to update its financial services legislation relating to anti-money laundering and counterterrorism. It should also enact the proposed measures to strengthen provisions relating to the cross-border transportation of cash and monetary instruments and to include gatekeepers, such as accountants and attorneys, as covered entities under its anti-money laundering laws.'

Developments In 2006-07

In May 2007, representatives of the European Union’s overseas territories agreed that they must work more closely together to maintain the good reputations of international finance centres, and to deal with international challenges.

The conference was organised by the BVI International Affairs Secretariat with assistance from OCTA and funding from the European Commission.

Conference participants noted that different standards were still being applied to so-called “offshore” centres from the standards set for “onshore” centres. The territories maintained that their centres were in some cases more compliant in meeting international regulatory standards set by bodies such as the Organisation for Economic Cooperation and Development (OECD), but often they are not given the recognition they deserved for such compliance.

All participants at the BVI conference emphasised that undertaking the business of international finance, whether offshore or onshore, comes with obligations and responsibilities. However, they suggested that there is an uneven playing field between small, offshore territories and large onshore economies. Without a level playing field, the territories said, they were at a competitive disadvantage, and the very objectives that regulatory standards seek to achieve were undermined.

The conference was attended by representatives from Anguilla, Aruba, Bermuda, BVI, Cayman Islands, French Polynesia, Greenland, Isle of Man, Mayotte, Montserrat, Netherlands, and the Netherlands Antilles, and from the Commonwealth Secretariat, the International Organisation of Securities Commissions (IOSCO), the Financial Action Task Force (FATF), the International Monetary Fund, the UK Foreign and Commonwealth Office and Financial Services Authority and the Netherlands Central Bank and Finance Ministry.

Meanwhile, in June 2007, whilst welcoming progress made in negotiations to conclude tax information exchange arrangements with a number of offshore jurisdictions, Nordic Finance Ministers announced that they might have to consider "possible defensive measures" against un-cooperative governments.

In a statement, the Norden group, which includes the governments of Denmark, Iceland, Finland, Norway and Sweden, observed that ongoing regional and global integration has created an international financial system virtually without border controls, and to be able to enforce various domestic laws, countries are today dependent on other countries’ willingness to share information.

"This is particularly true in the tax area," the statement said. "Unless an increasing number of countries begin to cooperate in sharing tax information, non-compliance with national tax laws will soon become an urgent global problem. It is therefore critical that all countries work towards establishing an international financial system which is based on transparency and effective exchange of information in tax matters."

However, the Nordic Finance Ministers said they welcomed "substantial progress" made in the ongoing negotiations with Aruba, Isle of Man, Jersey and the Netherlands Antilles. Other negotiations were shortly due to commence with Bermuda, British Virgin Islands, Cayman Islands and Guernsey.

In October, 2007, Australia's Minister for Revenue and Assistant Treasurer, Peter Dutton announced that the Tax Information Exchange Agreement (TIEA) between Australia and Bermuda has entered into force.

Commenting on the agreement, which came into force late last month, Dutton stated: "This is the first of our TIEAs to come into force, and represents a significant step in Australia's efforts to prevent offshore tax evasion and avoidance."

The TIEA provides for full exchange of information on criminal and civil tax matters between Australia and Bermuda. It has effect from 1 January 2006 with respect to serious tax evasion and, from 1 January 2008 for all other matters covered by the Agreement.

Dutton commended Bermuda for its continuing leadership in this area, demonstrated by its willingness to implement the higher standards of transparency and information exchange to which it has committed.

Bermudian Finance Minister Paula Cox and Australian Treasurer Peter Costello signed the information exchange agreement in Washington DC in 2005.

Australia is pursuing a comprehensive TIEA negotiation programme with a number of offshore jurisdictions. It is expected further TIEAs will come into force in 2008.

Australia has also signed a TIEA with the Caribbean jurisdiction of Antigua & Barbuda, while the Australian Tax Office (ATO) has held talks with the British Virgin Islands, the Cayman Islands, Grenada, Guernsey, Jersey, the Isle of Man and the Netherlands Antilles with a view to completing tax information exchange agreements with those jurisdictions.

In December 2007, after more than three years of discussions, the UK and Bermuda finally exchanged letters setting up an arrangement for the exchange of tax information. The letters passed between Meg Munn, Parliamentary Under-Secretary of State, Foreign and Commonwealth Office, and Paula Cox, Bermudian Minister of Finance.

The key paragraphs of the agreement state that:

The competent authority of the requested Territory shall provide upon request information (that is relevant to the administration or enforcement of the domestic laws of the Territories) concerning taxes covered by this Arrangement. Such information shall be exchanged without regard to whether the conduct being investigated would constitute a crime under the laws of the requested Territory if such conduct occurred in the requested Territory.

If the information in the possession of the competent authority of the requested Territory is not sufficient to enable it to comply with the request for information, the requested Territory shall use all relevant information gathering measures to provide the applicant Territory with the information requested, notwithstanding that the requested Territory may not need such information for its own tax purposes.

If specifically requested by the competent authority of the applicant Territory, the competent authority of the requested Territory shall provide information under this Paragraph, to the extent allowable under its domestic laws, in the form of depositions of witnesses and authenticated copies of original records.

Each Territory shall ensure that its competent authority, for the purposes of this Arrangement, has the authority to obtain and provide upon request:
(a) information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity;
(b) information regarding the ownership of companies, partnerships and other persons, including, within the constraints of Paragraph 2, ownership information on all such persons in an ownership chain; in the case of trusts, information on settlors, trustees, beneficiaries and the position in an ownership chain.

This document therefore commits the UK government to be able to obtain requested information from banks and trustees, regardless of whether any crime has been committed, and, needless to say, without the knowledge of the subject of an investigation or any requirement for a court order.

This is the first such arrangement entered into by the United Kingdom and the third concluded by Bermuda. The arrangement, says the OECD, confirmed Bermuda’s commitment to high international standards and its stature as a responsible international financial centre.

In a press release from HM Revenue & Customs, the Financial Secretary to the Treasury, Jane Kennedy also welcomed the arrangement, saying: “These new arrangements represent a significant step in our efforts to counter and prevent tax evasion and avoidance. I commend the Government of Bermuda for its willingness to implement the high standards of transparency and exchange of information to which it is committed and for its continuing leadership in this important global tax policy area.”

Developments in 2008-09

In February 2008, the IMF has urged the Bermudian authorities to speed up the process of updating anti-money laundering and counter-terrorist financing laws (AML/CFT), after an assessment suggested that legislation had not kept pace with the FATF Recommendations.

In a report based on its mission to Bermuda in 2006, the IMF concluded that there had been little legislative change since the AML laws and Guidance Notes (GNs) were brought into force in 1998, and the last IMF assessment in 2003.

"Apart from a few changes to the Proceeds of Crime Act (POCA) and the GNs, the only significant new legislation enacted was the Anti-Terrorism (Financial and Other Measures) Act 2004 (ATFA). New draft GNs, prepared soon after the last IMF mission, are still to be finalized and implemented," the report noted.

"The current AML/CFT regime has, therefore, not kept pace with changes in the FATF Recommendations, and the authorities have been slow in implementing a number of key recommendations from the last IMF assessment, particularly with respect to the reporting entities in the financial and non-financial sectors," it added.

While observing that the criminalization of money laundering and terror financing is "generally comprehensive", with offenses applying to both natural and legal persons, the IMF found difficulty in assessing the effectiveness of the legal framework because there have been limited money laundering investigations, and only one prosecution for this offence in the previous five years. Meanwhile, there have been no investigations into suspected terror financing.

However, the IMF took account of the fact that several pieces of new legislation were under consideration by Parliament to address a number of weaknesses in the regime at the time of the mission in 2006, and these were enacted in June 2007. The updates include amendments to the Proceeds of Crime Act, the Criminal Justice International Cooperation (Bermuda Act), and the Financial Intelligence Agency Act (FIA Act) to establish an administrative financial intelligence unit.

"Once implemented, these new laws will address a number of the weaknesses in the AML/CFT legal framework identified by the mission," the IMF observed.

Despite the report's highlighting of shortcomings in Bermuda's AML/CFT laws, the jurisdiction's government welcomed its conclusions, and Finance Minister Paula Cox responded that the island "has nothing to be ashamed of".

"The Government of Bermuda recognises the important international role that it must maintain to safeguard the security and economic well being of Bermudians and people of other nations from the global threat of organised crime and terrorism," Cox said in a speech commenting on the IMF report.

She went on to add that the government "is committed to completing the process of updating Bermuda's AML/CFT regime to reflect the most recent developments in financial crime and the revised international standards from the FATF".

"Our objective in Bermuda is to establish and maintain oversight arrangements that are transparent, consistent with international standards, suited to the risk profile of our industries and effective in encouraging prudent conduct and high standards of corporate behaviour," Cox stated.

In May 2008, Bermuda announced that it would file a submission to a new UK parliamentary investigation into the operation of offshore financial centres.

According to Cox, the Bermuda Finance Ministry's submission will aim to highlight the island's positive role as an international financial centre, and attempt to underscore the effectiveness of Bermuda's 'know your customer' rules and its ongoing commitment to improving its anti-money laundering regime.

"In this instance, Bermuda as a jurisdiction has an open opportunity to make a timely intervention that will underscore the enduring quality of our domicile as a premier international financial centre," she said at the time.

The House of Commons Treasury Committee announced on 30th April 2008 that it would to undertake an inquiry into offshore financial centres, their impact on global business and investment, and the international fight against money laundering.

The inquiry, the submission period of which closed on 19th June, 2008, formed part of the Committee's ongoing work into Financial Stability and Transparency. The inquiry also looked at the role that offshore territories play in UK tax policy, and the Treasury's ability to collect revenue.

The Treasury Committee's launch of the new inquiry was made shortly before the publication of a report by another parliamentary committee, the House of Commons Committee of Public Accounts, which argued that the UK Foreign and Commonwealth Office (FCO) is not doing enough to manage the risks arising from the UK's liability for the 14 Overseas Territories choosing to remain under British sovereignty, particularly in the area of financial regulation.

In November 2008, Financial Secretary to the UK Treasury, Stephen Timms, praised Bermuda for its commitment to the standards that the OECD has set out on issues like tax information exchange and anti-money laundering.

Mr. Timms’s comments came during the Overseas Territories Consultative Council (OTCC) meetings in London that month.

After his presentation to leaders of the Overseas Territories, Timms said: “If on tax information exchange everyone had made as much progress as Bermuda the world would be better off.”

“The UK Financial Secretary’s comments are a strong endorsement of the work we’re doing as a government,” said Bermuda Premier Ewart F. Brown, “and the stewardship of the Finance Minister (Paula Cox) who has dedicated a lot of her focus to this issue. Now more than ever it is important for the country to know its economy is directed by strong and steady hands.”

Cox commented: “We’re not stopping here. The relevant personnel recently returned from Europe where more critical negotiations are underway that will further enhance Bermuda’s reputation in the finance arena.”

Following the conclusion of the G-20 summit at the beginning of April 2009, Finance Minister Paula Cox released a statement regarding Bermuda’s placement on the OECD’s 'greylist' of uncooperative territories. The OECD’s list features Bermuda in the second tier of compliant territories who have not substantially implemented the OECD standard.

She expected, however, that Bermuda would be in the top tier of ‘fully compliant’ countries by the end of 2009.

Bermuda had at that point concluded three Tax Information Exchange Agreements following its adoption of OECD principles of transparency and information exchange on May 15, 2000, with the United States, Australia and the United Kingdom.

Cox said that although Bermuda had not yet achieved the benchmark 12 TIEAs required to be placed on the OECD’s list of fully-compliant jurisdictions, eight were in the pipeline with the seven Nordic countries and New Zealand. “A TIEA with Germany is planned for the near future, bringing Bermuda's total to 12 in fairly short order. At least two more TIEAs are expected to be signed by the end of this year or early next year,” reassured Cox.

"Based on our understanding that the OECD standard was very recently set at 12 treaties, Bermuda will have met the standard before the close of 2009 and most probably ahead of the next G20 Summit Meeting which is scheduled for later in the year,” Cox concluded.

New Zealand and Bermuda signed their bilateral agreement providing for the full exchange of information on criminal and civil tax matters between the two countries on April 16, 2009.

"I welcome the signing of this important agreement with Bermuda, which was one of the first international finance centres to engage in partnership with OECD countries in the worldwide effort to achieve greater transparency and co-operation in tax matters," said New Zealand Revenue Minister Peter Dunne.

"The TIEA will enable tax authorities to access information about any persons who are seeking to evade payment of tax and will also help disclose assets that have not been reported in their home country," he added.

Information to be exchanged includes information on beneficial ownership of companies in the whole ownership chain; settlers, trustees and beneficiaries of trusts, and information held by banks and financial institutions.

"Recent weeks have seen major developments worldwide in tax co-operation as an increasing number of financial centres have announced that they will adopt OECD standards for exchange of information," Dunne went on.

"These developments are expected to further the negotiation of an extensive network of exchange of information arrangements, making it increasingly difficult for people to hide income and assets offshore. Bermuda agreed to work with New Zealand towards the conclusion of a TIEA long before the recent developments. I congratulate Bermuda on its progressive stance, and look forward to strengthening the spirit of goodwill that has developed between our two countries," he concluded.

Jeffrey Owens, Director of the OECD’s Centre for Tax Policy and Administration, welcomed these developments.

“Bermuda is an important financial centre that played a constructive role in developing the standards now endorsed by all major financial centres," he said. I am very pleased that it has taken another significant step in implementing the standards. I know that it is determined to implement the standards fully and that other agreements will follow shortly.”

In January, 2010, the Bermuda government announced that it had been chosen as the host nation for next year's meeting of the Organization for Economic Cooperation and Development's (OECD) Global Forum on Transparency and Tax Information Exchange.

The announcement was further recognition of Bermuda as a leader amongst offshore territories in the field of tax information exchange, having concluded 18 Tax Information Exchange Agreements since being temporarily placed on the OECD "grey list." Bermuda was chosen as the host nation following a vote by members of the Steering and Peer Review Groups.

Despite initially being placed on the grey list of territories that had not yet substantially implemented the internationally agreed standard on tax information exchange, Bermuda received recognition by the OECD through its placement on the white list on June 8, 2009, and was then elected to the position of Vice Chair of the Steering Group of the new Global Forum at its 5th Meeting in Mexico City on September 1-2, 2009.

A statement from the Bermudan government noted that it marked another significant milestone for the territory, one of a number of significant international achievements for the island. Commenting on the decision, Bermuda’s Finance Minister, Paula Cox, observed: “Bermuda is honored to host the 2011 event particularly for a small offshore jurisdiction such as ours. The Ministry of Finance officials who first indicated Bermuda’s desire to host the Forum and then represented Bermuda so remarkably during the voting process are to be commended."

Cox added: “This meeting will probably be the first opportunity for the Global Forum to fully discuss the effectiveness of the OECD’s Peer Review process and the outcomes of those reviews in terms of our agenda of promoting the adoption of international standards of transparency and exchange of information."

"The 2011 meeting will be the first Global Forum meeting from which Phase 1 Peer Review will be substantially completed and many Phase 2 reviews will also have been undertaken. Further, this meeting is expected to start the process of exploring the role of the Global Forum in providing assistance to those who are not fully compliant as well as other issues around the interests of developing countries meeting standards in tax transparency and information exchange.”

Bermuda continued to sign TIEAs during 2010, and in June Bermuda and Indonesia concluded negotiations towards a TIEA, the text of which incorporates the Organization for Economic Cooperation and Development (OECD) standard on transparency and tax information exchange in civil and criminal tax matters.

The TIEA is expected to be signed later this year after both countries’ internal approval processes have been completed.

Negotiations took place at the Ministry of Finance, in Hamilton, in the week of June 7, at which time discussions on a number of issues of common interest also took place.

Welcoming the agreement, Bermuda’s Minister for Finance, Paula Cox, said: “I am delighted today for Bermuda to [initial] this agreement with the Republic of Indonesia. Indonesia has the remarkable distinction of having outperformed its regional neighbours and joined China and India as the only G20 members posting growth during the recent financial crisis. Together, Bermuda looks to the Republic of Indonesia as a key strategic relationship we are keen to foster.”

“Indeed, as the negotiations for this TIEA were held in person in Bermuda, a valuable opportunity was provided for the Indonesian Ministry of Finance to get a more rich and fulsome view of Bermuda, our strong regulatory regime, and our success as a well-established and well-regarded financial centre.”

“Currently, there are 62 entities in Bermuda with an Indonesian interest, and we expect this number to grow exponentially as our economic and political ties with Indonesia are strengthened and deepened. This agreement is a significant step forward both in enhancing business ties and investment opportunities between Bermuda and Indonesia but it will also facilitate Bermuda expanding our offerings in the realm of Islamic structured finance, including both conventional and Shari’iah investment funds. It is likely that the global market for Islamic insurance, or Takaful, will continue to grow, opening exciting possibilities for Bermuda reinsurers.”

Bermuda currently has 21 signed agreements with provisions for the exchange of information for tax purposes. Bermuda has signed TIEAs with the United States, Australia, the United Kingdom, New Zealand, the Nordic countries (Sweden, Norway, Finland, Denmark, Iceland, Greenland, the Faroe Islands), the Netherlands, Germany, Ireland, the Netherlands Antilles, France, Mexico, Aruba, Japan, and Portugal. Further, Bermuda has a double taxation agreement with Bahrain.

Bermuda’s proposed TIEA with the Republic of Indonesia includes all standard means to ensure due process is followed in tax information requests to Bermuda, including, for example, provisions to protect the confidentiality of information provided and provisions related to protecting legal privilege. The agreement also ensures that requests for information from Indonesia are relevant to tax investigations being conducted by Indonesian authorities.

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